A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. The expected life for each is five years with no expected salvage value. The net cash inflows associated with the two independent projects are as follows: Year MRI Equipment Biopsy Equipment 1 $200,000 $50,000 2 100,000 50,000 3 150,000 100,000 4 100,000 200,000 5 50,000 237,500 1. Compute the payback period for each project. Assume that the manager of the clinic accepts only projects with a payback period of three years or less. Offer some reasons why this may be a rational strategy even though the NPV computed in Exercise 19-11 may indicate otherwise. 2. Compute the accounting rate of return for each project.
A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. The expected life for each is five years with no expected salvage value. The net
Year MRI Equipment Biopsy Equipment
1 $200,000 $50,000
2 100,000 50,000
3 150,000 100,000
4 100,000 200,000
5 50,000 237,500
1. Compute the payback period for each project. Assume that the manager of the clinic accepts only projects with a payback period of three years or less. Offer some reasons why this may be a rational strategy even though the
2. Compute the accounting
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